Challenges expected for UK specialty re/insurers in 2024 despite strong 2023: EY

As 2024 draws closer, Martina Neary, UK Insurance Leader at EY, has suggested the UK’s specialty insurance market will face a host of challenges in the year, including increasing weather events, sustained inflation and cost pressures, and increasing geopolitical uncertainty.

According to Neary, UK specialty insurance and reinsurance firms performed well throughout 2023, boasting strong H1 results underpinned by “robust underwriting and investment returns being boosted by interest rate increases.”

Neary also said that H2 of 2023 has benefitted from relatively benign weather events. However, following a period of steady premium rate increases and market hardening, some lines, in particular, management liability and cyber insurance, are showing signs of softening.

“Looking to next year, in addition to contending with this mixed pricing environment, the UK’s specialty market will continue to face challenges including increasing weather events, sustained inflation and cost pressures, and increasing geopolitical uncertainty,” Neary explained.

She continued, “It will therefore be more important than ever for insurers to innovate to optimise operations and processes, and carefully manage the pricing cycle to maintain profitability levels in 2024.”

As for the wider insurance market outlook, Neary observed that the challenging economic environment that has categorised much of 2023 is set to continue into 2024.

She added, “For UK insurers, this means facing ongoing inflationary and cost pressures alongside a higher frequency of claims, and despite premiums rising – particularly across home and motor insurance policies – profitability will continue to be a concern for firms into 2024.

“While cost of living pressures for consumers are beginning to ease, inflation remains high and premiums are rising, driving a real concern that some consumers may stop making policy payments or go without sufficient cover.”

In Neary’s view, the industry will continue to prioritise customer support throughout this challenging period while managing their own costs carefully. She also stated that UK insurers will need to navigate the challenging macroeconomic environment while maintaining focus on critical growth areas including ESG and digital transformation.

“Gen AI is now high on the agenda and will be a strong focus next year, so firms will be upskilling staff, hiring and developing the requisite talent, and managing the associated risks and ethical considerations that come with this technology,” Neary added.

She concluded, “Keeping pace with regulatory change will be a continued focus for the industry in 2024. Firms have navigated the introduction of the General Insurance Pricing Practices regime and the Consumer Duty in recent years – both substantial pieces of regulation which have radically impacted strategies and pricing approaches.

“Compliance with these new rules was the first step for firms, and now focus should turn to ensuring these principles are truly embedded throughout their operations and culture.”

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